Moving forward
Baylor, Scott & White reach agreement on deal
Baylor Health Care System and Scott & White Healthcare are headed toward becoming the largest notfor-profit system in Texas and one of the bigger ones in the U.S. It took longer than they’d hope to get there, but the organizations reached a definitive merger agreement last week to create a $7.7 billion health system. Negotiations for the deal extended beyond an April deadline.
The partners knew early on that the schedule was aggressive, and it proved to be, said Joel Allison, Baylor’s president and CEO. He called the agreement a major step forward.
Dr. Robert Pryor, president and CEO of Scott & White, said that aggressive timetable focused everyone’s attention so the partners could “get it done and move on.”
Now the Federal Trade Commission and Texas attorney general will review the deal’s potential impact on competition. Scott & White operates hospitals clustered around Temple, Texas, a city about 130 miles south of Dallas that’s home to its flagship facility and headquarters. Baylor— the larger party to the deal—has all of its hospitals in the Dallas-Fort Worth area. Their service areas come close but don’t overlap.
The Texas Insurance Department must also review the deal because Scott & White owns an insurer. That was one thing that drew Baylor to the table, Allison said.
The shift underway to pay hospitals and doctors to better manage patients’ care and costs requires data collection and analysis and expertise managing financial risk, which an insurer can provide, Allison said. Baylor saw an opportunity in the Scott & White deal to gain access to those assets, which it would otherwise have to develop internally or acquire, though deals or joint ventures. Scott & White Health Plan is preparing a big push to sell coverage on the insurance exchange created under the Patient Protection and Affordable Care Act (April 29, p. 6).
The deal is expected to close this fall. If successful, the combined system will have $7.7 billion in assets and $6 billion in net revenue, Allison said, citing last year’s audited financial statements. The new parent company, with headquarters in Dallas, would be called Baylor Scott & White Health. The medical staffs would remain independent at the outset and “grow together” as the new system matures, according to an outline of the structure. A new board would have equal representation from each institution.
Allison would be named CEO of the new company, and Pryor is expected to be its president, chief operating officer and chief medical officer, as well as president of its Templebased service company.
Allison said he believed that “execution risk”—threat to operations and strategic goals that merging companies face while a transaction diverts time and resources—will be minimal because a cultural audit found the potential partners “much more alike than different.”